GE to shed 12,000 jobs; US net worth jumps; China FX reserves hold; IMF worried about China debt; HNA concerns rise; UST 10yr yield at 2.35%; oil up, gold drops; NZ$1 = 68.5 US¢, TWI-5 = 71.5

Here's my summary of the key events overnight that affect New Zealand with news the IMF is increasingly worried about Chinese debt levels.

In the US and in a sign of the demise of using coal to produce electricity, GE has announced it is shedding 12,000 jobs at one of its major divisions.

The US Federal Reserve has released data showing the net worth of American households rose to a record $97 tln boosted by rising stock markets and higher house prices. That puts US household wealth at more than 5.2 times their annual GDP. The growth in the September quarter was the fastest on record. By way of reference, New Zealand's household net worth is also about 5.2 times our annual GDP.

China is reporting that its foreign currency reserves held above US$3 tln in November and grew ever-so-slightly for the tenth month in a row.

In a new assessment by the IMF, they report a "large and growing debt overhang" (p13) that makes the Chinese economy vulnerable to shocks. It highlighted these and other concerns over imbalances in the world's second-largest economy. Stress testing they did found four-fifths of their banks are vulnerable. It wants China to boost their capital. Interestingly, Chinese media are ignoring the review.

But they are highlighting a new local report that their property market faces deeply entrenched problems including having the wrong housing stock, a lack of affordable housing due to insufficient government support, and a geographic-demographic supply mismatch.

And the concerns over HNA just keep growing as their debts mount and repayment obligations get massive. But not every Chinese corporate is like HNA.

In Australia a new labour dispute is brewing in Qantas with the airline using New Zealand based aircraft and crew to fly trans Tasman. The union wants them to be Aussie-based.

And the head of the Australian Tax Office is pleading with Aussies to stop the “less for cash” mentality ingrained in the Australian psyche when they employ trademen. It so endemic, supply stores like Bunnings enable the scam.

In New York, the UST 10yr yield is now at 2.35%.

The price of crude oil is up slightly today, now just over US$56.50 / barrel, while the Brent benchmark is just under US$62.

The price of gold is down -US$11 at its new lower level of US$1,252 oz, a five month low.

The Kiwi dollar is marginally softer. We are now at 68.5 US¢. And on the cross rates we are higher at 91 AU¢, and against the euro at 58.1 euro cents. That puts the TWI-5 just down a tick at 71.5. Meanwhile the rise and rise of bitcoin continues. Today it is at US$16,057 which is +US$3,340 or +27% higher than this time yesterday. In New Zealand dollars it is now over NZ$23,400 each. And even though bitcoin is only pure speculation, mining them is producing a "colossal" carbon footprint.

If you want to catch up with all the changes yesterday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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57 Comments

I wonder if bitcoin keeps going like this, should I buy some vintage shacks in the double grammar zone, or retire somewhere properly nice.

its been a wild ride, up and down last couple of days, good luck to all holders,

Just like the Auckland housing market and the sharemarket over the last 8 years.. if you think its been wild on the way up, wait till it changes direction. Strap yourself in, we're going to loop this sucker ;)

Just run a platform like Nicehash and then cut and run when the bitcoin value exceeds $60m USD.

Nicehash hack.
https://www.justcryptonews.com/292/nicehash-hack-heres-how-they-stole-47...

The wallet where all the "hacked" btc ended up. Now valued at $75m USD.
https://bitinfocharts.com/bitcoin/address/1EnJHhq8Jq8vDuZA5ahVh6H4t6jh1m...

I’ll confess, I don’t really understand the cryptocurrencies. I don’t think I’m the only one. I bet many of the people buying cryptocurrencies don’t understand them either, but they understand it’s going up and that’s all they need to know. With the wild increases in price it all just looks like a bubble and a craze...doesn’t it? I’m happy to sit this one out.

Nope, you aren't the only one. had a friendly arguement with a friend who suggested i "invest" in bitcoin. I asked him to tell me what the underlying fundamental reason bitcoin will be worth more in 6 months than it is now.... he had no answer. AFAICS bitcoin is an IOU from an anonymous person on the internet. Its underlying value is the paper it's written on :)

"Its underlying value is the paper it's written on :)"
Check your $20 bill in your wallet..same concept :)

Not quite... NZ currency is an IOU from the reserve bank/NZ govt.. not an anonymous user on on the internet. And i can use my NZ currency (not that i ever carry paper money) to buy stuff at the local supermarket in real time. Not a laggy transaction via a blockchain that needs confirming several hours later. NZ dollar is underwritten to a large extent by the entire NZ economy, and it is relatively stable, I know that $2 today will by a can of coke at the local lunchbar, and i know tomorrow it will probably be the same, and in 6 months it may be $2.20.

There is not much of it about, hence the economy is undewriting bank IOUs (deposits) masquerading as money that cannot be taken out and put under the mattress. View more (Assets ($M) line 1)

Bitcoin is supposedly meeting a global need, given many believe OBR (bail-in mechanisms) will extinguish their illiquid bank savings sooner than later.

Point is with respect to the 'not much of it about', wouldn't that hold true as well for fulfillment of blockchain transactions converting to cash?

So, I'd imagine if there is ever a run on bitcoin, the banks (the creators of the only 'real' notional money) hold all the cards.

Not only that but I read that mining it uses massive amounts of electricity to produce what seems (to a simple person like me) to be absolutely nothing. How can that be a good thing?

Comes in handy when socialists hold the reins of power. If you are starving who cares about electricity. "In Venezuela, home to some of the worst hyperinflation since the Weimar Republic, a Big Mac costs about half a month’s wages. Or rather, it did, until a bread shortage forced the burger off the menu. The annual inflation rate is expected to hit 1,600 percent. Life resembles an old newsreel: long lines, empty shelves, cashiers weighing stacks of bills.

To survive, thousands of Venezuelans have taken to minería bitcoin—mining bitcoin, the cryptocurrency."

I'm trying to push understanding. If most of those investing in cryptos actually understood them I don't think they'd be investing at all. They're breaking an important rule of Warren Buffett's philosophy.

When someone steals 4736 BTC the transaction is not anonymous so people can see where it goes until it's run through a tumbler. Even though it's stolen the transaction is also irreversible. In another forum this latest hack is being compared to the wild west when gold would be stolen.

A related factor is that those that do understand are not the generation holding the worlds wealth.

It is not just bitcoin I don't understand. I keep dreaming that I will go the supermarket and proffer $20 notes and the checkout operator will say "why do I want bits of green paper for these foodstuffs?". It seems to be a matter of trust and maybe I am unique in not having 100% faith in the government.

Definitely not unique.

Most people have heard of the rice and chessboard fable. Perhaps bitcoin's growth is going down those lines? From January 1, 2015 the bitcoin price started at US$314 and then doubled in 529 days. Then it doubled in 322 days. It doubled again in 44 days, then slowed down to double yet again in 121 days reaching US$5,440 on October 12.

It then doubled in 50 days to US$10,860 by December 1, 2017.

Seven days later it is up another +60% to US$15,804 (now). Maybe the next doubling will be by Tuesday?

Re-read the fable ...

I think the fable works better if you place 1 tulip bulb on the first square.

So will start at $1 and get to $18,446,744,073,709,600,000 - 250,000 times the size of the global economy - per bitcoin?

I saw last night the total bitcoin mined to date is 16 million? With a cap of 21 million not many left..can anyone confirm this?

Correct.

By design, it takes longer to mine each subsequent coin. Hence the massive effort and energy going into mining them - when it started, a laptop was powerful enough to mine, now you have pools of people running dedicated hardware.

It's correct. The original idea is that by the time the last bitcoins are mined is that the transaction fees on each transaction make up for the lack of bitcoin production.

Every block mined pays 12.5 bticoins + transaction fees for the block.
http://www.bitcoinblockhalf.com/

Hard on the poor old plumber when the corporates are making off like a robbers dog

Michael West
We have a sample: 3 year ATO figures - 1/3 of Aust’s biggest companies paid zero #tax. Multinationals again the biggest offenders. Now for the naming and shaming

The combined income of the 732 corporations that paid NOTHING in corporate tax last year is over HALF A TRILLION DOLLARS.

https://www.michaelwest.com.au/19282-2/

And locally a restructure commenced under National in IRD, purposefully reducing the audit cohort of their employee numbers.

See here, where a previous insider explains;

https://letstalkabouttaxnz.com/2017/07/27/right-from-the-start/#comments

Noting as well the third comment, which is what I commented/surmised when Andrea first posted on the nature of the restructure.

And here is her earlier post on it where she suggests (at that time) she didn't think the push for change was ministerially (as in Prime Ministerially) -led;

https://letstalkabouttaxnz.com/2017/07/19/nothing-much-at-stake/

Connect the dots.

"We're not a bank. Instead, we connect borrowers with investors through our online marketplace."

Sound familiar? No, it's no Harmony but Lending Club in The States...

"Lending Club shares plumb new depths...the stock touched a record low, down 23 per cent on the day and off about 80 per cent from the initial public offering price in December 2014."

https://www.ft.com/content/fe5e58f2-db65-11e7-a039-c64b1c09b482

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National's housing timebomb detailed in damning paper

http://www.newshub.co.nz/home/politics/2017/12/national-s-housing-timebo...

Smithies face is even more embarassed than ever - all he can say is the supposedly independent report is lies. Chickens / roost Nicky boy, the jig is up.

Health, environment, housing, immigration. Please someone tell me something good we got from 9 years with the pm of parnell and then the inglorious billshitter. Pls just something to show they actually did something.

Pls.......

I suspect that the situation for many businesses and services in regards to staffing is dire enough especially in and near Auckland that there is growing behind the scenes pressures from such quarters for government to fix our housing issues.
I trust such needs will overcome the strident squeals of those invested in our property ponzi.

Didge. Twyford has finally twigged that he will not be able to magic up the resources to fulfil the promise he made to build 100,000 houses so is generating reports to demonstrate the problem ' is far worse than they thought', in order to save his political ass, when the realisation he will fail to deliver dawns on the great unwashed.

Housing shortage data is notoriously volatile depending on on occupancy rates used, with minor variances to inputs having a significant impact on outputs. Snake oil salesman Smith showed us how to massage a housing shortage down by making a small 'adjustment' to those occupancy numbers, Sly Twyford continue this same fiddling tradition but in the other direction. Somewhere halfway between these two data manipulators numbers, is probably where it is at.

Cultural impacts on housing occupancy concentration from the flood of recent migration have obviously changed the average occupancy ratio expectation, yet the usual suspects, oblivious to the massive social engineering change NZ has experienced in recent years, continue to feed us the line that historic occupancy metrics remain relevant and the target we should aim for.

We have been conditioned by years of shallow unquestioning media to believe that any aspiring FHB has the right to own a home. That Raj, newly arrived from Mumbai with little or no capital, should be included in the list. When common sense ought to be telling us that it will be some time before a bulge of more recently arrived immigrants can realistically own a home. But that is not the stuff election slogans are made of and beyond the capability of much of the commentariat to figure out.

The US Federal Reserve has released data showing the net worth of American households rose to a record $97 tln boosted by rising stock markets and higher house prices. That puts US household wealth at more than 5.2 times their annual GDP. The growth in the September quarter was the fastest on record. By way of reference, New Zealand's household net worth is also about 5.2 times our annual GDP.

An outcome predicated on cheap debt - leveraged credit for the investor fabricated by bank lenders underpinned by leveraged capital (RWA).

Bill Gross had more to say earlier today - HT Andrewj

Who is actually making money from Bitcoin ?

An associate of mine posted on facebook that he drunkenly bought $340 of bitcoin the other day and its now at $445 or something.. but he also revealed that the exchange he purchased it on charged him a fee which works out just shy of USD$50 for doing so. so there is money in being a middleman.

I've got 260 VTC. Bought it at $2000. Now worth about $3000.

for now..
bitcoin is currently resembling an exponential growth curve.

now what did that old guy Al Bartlett say about exponential curves again?

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10

Seems to me the next global shock is most likely to come from China. A banking crisis and a currency crisis. The debt numbers are frightening. The junk debt is enough to wipe out the equity in its banking system many times over. An absolute mess.

And we are hell bent on becoming China's economic vassal. It won't end well.

.........and once deflation breaks out globally, it will be impossible to stop. Just ask the Japanese, they are still printing money!

.

Excellent Opinion piece on Stuff this morning on democracy, here

Yes, interesting - but I think he fails to see that Trump has most likely come under such corporate/media pressure as he is considered to be an outsider by the oligarchs. That's not to say however that Trump was ever capable of solving any of their ills - economic or democratic ills, that is.

Richard Duncan relates in rise in net household worth to disposable income, and says the ratio has never been worse. Then he talks about how stocks are even more overvalued than houses, and have only been more overvalued twice in history.

Were the debt bomb to go off in China, would they press more earnestly on repatriation of wealth to shore up the country?

Hmm. Totally unqualified to comment but I'd imagine (as opposed to 'retreat') they might instead flout international law and institutions, using their offshore ownership 'reach' to decimate other economies as a means to capture a greater share of ownership interests in those economies before such repatriation, or 'retreat' on a large scale might occur - starting with the smaller economies with the greatest mineral wealth - Aus and NZ being top of mind, of course.

scarfie. so your proposition is that the application of metrics such as PE ratios, historically used to determine stock price 'overvaluation' , remain valid in the face of environmental changes such as expanded money supply causing interest rates to fall to unprecedented levels?

Many clients we meet have similarly apocalyptic views to our own but remain fully invested. They cannot see an immediate trigger for the financial Armageddon that they accept is heading slowly our way.

On this view if China?s policymakers are now pressing hard on the policy brakes after their politically expedient puffing up of the economy, a soft landing might prove more elusive than almost any investor currently assumes. Could this yet be the trigger that blindsides investors?
http://www.zerohedge.com/news/2017-12-07/albert-edwards-current-situatio...

"Many clients we meet have similarly apocalyptic views to our own but remain fully invested. They cannot see an immediate trigger for the financial Armageddon that they accept is heading slowly our way."

Hmmm, its a bit late to do anything if you don't react until you see the muzzleflash.

Given the milli? / micro? second trading now happening the "muzzleflash" capability is here and has been for years.

http://fortune.com/2017/09/27/stock-market-crash-1929-next/

There probably needs to be some sort of trigger, a paradigm shift that occurs that finally dawns on the "markets" as a dire event, then I suspect mom & pop investors wont even get to see the muzzle flash as the parasites exit in minutes....

Which is why I've mostly bailed out and intend to be fully out by year end. You cant play against an AR15 with a No4 Lee Enfield, you have to play a different game.

Bitcoin, it appears just 1000 investors hold 40% of the market!

https://www.bloomberg.com/news/articles/2017-12-08/the-bitcoin-whales-1-...

Even though we cashed out of bitcoin a few days ago....while there was still clearly some crazy escalation left to go, we are super happy to be off the roller coaster for now!